1.Specify the nature, structure, types of products or service of your chosen organization, and two (2) key factors in the organization’s external environment that can affect its success. Provide explanation to support the rationale. De Beers Diamond Company is an industry that currently produces $13 billion worth of rough diamonds each year, leading to the employment of 10 million people globally from mining to retailing. 70% of rough diamonds are sold for industrial purposes with the remaining 30% “gem quality” being distributed to experts for cutting, polishing and jewelry manufacturing (Stein, 2001).
The global jewelry market has increased three-fold in the last 25 years and is currently worth $72 billion each year. Jewelry diamonds are unjustifiably expensive given that they are not actually scarce. Upon the discovery of other diamond reserves globally, De Beers set up a subsidiary called the Central Selling Organization (CSO), responsible for buying the production for all mines worldwide then selling the produce to dealers in return for a percentage fee (10 – 20 %) from producers (Stein, 2001). The CSO was able to maintain illusion of scarcity by deciding the quantity of diamonds to be supplied to the world market and in turn, allowing individual producers to produce a certain percentage of that amount (De Beers Group, 2012).
The CSO then sold batches of rough diamonds to selected dealers at their exclusive sightings. The CSO were able to dictate inflated prices to dealers, as if dealers tried to negotiate on price, they were not invited the subsequent sightings. From the late 1800’s the CSO controlled the sale of 80% of the world’s diamonds (De Beers Group, 2012).
The organization’s external environment in the industry is the exploration and mining of diamond fields in the production stages. These are often carried out by governments, sometimes in joint ventures with companies such as De Beers. Once a reserve of any notable size is discovered it is worth exploiting because of the high market value of the raw material leading to significant financial reward (De Beers Group, 2012).
2.Examine three (3) salient stakeholders of the chosen organization based on their key roles and relationships with the company.
Three salient stakeholders for the De Beers Diamond Company are The Kimberley Process, Business Action for Africa, and Diamond Development Initiative (De Beers Group, 2012). The Kimberley Process is a joint government, industry and civil society initiative to stem the flow of conflict diamonds – rough diamonds used by rebel movements to finance wars against legitimate governments (De Beers Group, 2012). Business Action for Africa is an International business and organization from Africa. As Business Action for Africa in support of three primary objectives: positively influence policies needed for growth and poverty reduction, promote a more balanced view of Africa, development, and showcases good business practice.
De Beers encourages sustainable business to ensure long-term positive development for Africa; this commitment is expressed in part through their considerable social investment activities in South Africa, Botswana and Namibia. De Beers returns more than $2.0 billion to the continent every year (De Beers Group, 2012). De Beers approach to sustainable development is integral to business and is underpinned by 5 strategic focus areas: Economics, Ethics, Employees, Communities, Environment.
Diamond Development Initiative is a diamond industry program that seeks to alleviate poverty amongst the more than one million African informal, or artisanal, small diamond diggers and their families by formalizing the economies surrounding artisanal diamond mines (De Beers Group, 2012). De Beers founded the DDI, together with leading NGOs, the World Bank and the British Government, after being inspired by the cross-sector cooperation of the Kimberley Process. It brings together NGOs, governments, and the private sector in a common effort to convert diamonds into an engine for development (De Beers Group, 2012).
3.Suggest five (5) ways in which the primary stakeholders can influence the organization’s financial performance. Provide support for the response. Diamonds have been successfully marketed so that they are perceived to be the ultimate way to demonstrate heartfelt and enduring affection and commitment towards others (Stein, 2001). This allied with the fact that they are given as gifts to celebrate many births, weddings and anniversaries, means that they hold a unique place in the hierarchy of jewelry and as such there are no substitutes for them.
To a certain extent other jewelry such as gold, silver and platinum are substitutes, however they are all complementary products as often diamonds are mounted on gold and silver in their final form as consumer jewelry. Large amount of synthetic diamonds are produced each year however most of these (3 billion carats) are for industrial use, with only a few thousand carats of gem quality synthetic diamonds being produced annually, against production of 120 million carats of natural diamonds. As there are very few non-clear natural diamonds produced each year (0.1%), synthetic diamonds produced for the jewelry industry are generally colored in order to meet excess consumer demand for colored gems (Stein, 2001).
As they have few if any substitutes, diamonds are an elastic commodity. De Beers have managed to attach an emotional value to diamond jewelry, thus ensuring it is a necessity for every marriage proposal, as well as a host of other distinctive occasions such as anniversaries and birthdays (Stein, 2001). Today diamonds are perceived to be the ultimate way to demonstrate enduring love and devotion and as such consumers are willing, and expect to pay a high premium for such a gift. This is demonstrated that the demand for diamonds increased decade on decade during the 20th Century while prices increased precipitously during that period (Stein, 2001).
Since the discovery of the diamond fields in South Africa in the 1870s, production has continuously increased over time, and now an accumulated total of 4.5 billion carats have been mined since that date. Interestingly 20% of that amount has been mined in the last 5 years alone. This increase in production levels is largely due to the increased global demand for diamonds, owing largely to the marketing activities of the De Beers group. As described earlier, De Beers set about increasing consumer demand by marketing diamonds as the ultimate demonstration of love and devotion, leading to the diamond ring being essential for marriage proposals from the 1930’s onwards.
De Beers also came up with the slogan “Diamonds are forever” to endow stones with sentimental value, resulting in very few diamonds being sold privately by individuals (the public holds more than 500 million carats of gem diamonds, more than fifty times the number of gem diamonds produced by the diamond cartel in any given year). As a result there has been no decrease in the demand for brand new diamonds from high street jewelers (Stein, 2001). De Beers were also responsible for globalizing consumer markets for diamonds, successfully increasing demand for diamond jewelry in countries such as Brazil, Germany and Japan. In the 1960’s when Russia began producing large amounts of rough diamonds that were small in size, De Beers shifted marketing campaigns to manufacture a demand for several small diamonds set on a single piece of jewelry rather than just one large stone being set on its own, leading to a demand being created for small stone to match the supply.
The global recession has resulted in the demand for diamonds decreasing dramatically. In previous economic downturns, De Beers has had exclusive control of the market and has been able to maintain the high price and as a result diamond’s perceived enduring luxury and exclusivity.
4.Specify one (1) controversial corporate social responsibility concern associated with your selected organization. De Beers Diamond company was, at one point, known as the conflict diamonds worth $1.2 billion that floated to the global market as a result of the civil war in Angola and Sierra Leone in the 1990s, De Beers felt compelled to buy the new supply of diamonds in fear that it would lose its competitive advantage (Goreux, 2001). This resulted in a public relations disaster as De Beers had blood on its hands, the United Nations imposed sanctions on conflict diamonds and under the pressure of consumer boycotts and activist campaigns (Goreux, 2001).
5.Assuming you are the leader of the most influential stakeholder group, outline a plan to form a stakeholder coalition to force the organization to address your chosen controversial issue. The plan should include the key steps that you would take to identify members for your coalition group, the major reasons why you believe that the particular target group can help you to accomplish your goal, and the method you would utilize to foster collaboration among the various groups you target. Opportunity to alleviate the poor PR image and re build brand equity: De Beers In 2000 initiated a “Kimberly Process” which with almost 70 and all the big industry players committed the industry to a strict certification process for the legitimate origin of diamonds (Burne, 1996). It has been in effect from 2003 and has reduced the number of conflict diamonds to 0.2% of global production.
De Beers became the first mining company to extend health insurance to HIV positive workers and their families in South Africa, Botswana and Narribia (Burne, 1996). De Beers must pay attention to their environmental footprint in all their operations. All its major operations have been certified. Opportunity for a differentiated product: De Beers is developing a De Beers brand of diamonds and luxury goods. In 2000, it formed a joint venture with a leading luxury goods firm LVMH and opened a De Beers LV store in Tokyo.
However, desires to open stores in the US were frustrated by the US government ban on the business due to its alleged anti-trust violations (Burne, 1996). An Established reputation among the market with more than a century of experience with the ability to adapt to changing environments, but despite this strength, its market share is decreasing due to more players in the market and non-government organizations intervening with demands for more expenditure for CSR initiatives (Burne, 1996). DeBeers has had price leadership for numerous decades, although, the loss of its monopolistic position in the market has seen it become less of a threat to other organizations (Burne, 1996). DeBeers has opened luxury diamond stores in New York as a strategy to adapt to a diverse market, enabling it to build a new brand; this has become strength for DeBeers in recent years as the stores sell direct to the public (Burne, 1996).
